Hong Kong: Carrie Lam’s Maiden Policy Address

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The Policy Address of Carrie Lam, our Chief Executive, was long on detail – but short on vision. (Originally published on http://www.enziovonpfeil.com/ on 12 October, 2017)

(Government photo)

1. Our overall observations

  • Budget instead of vision
  • Spending on housing and on education. CE outlined how she would use some of our HK$1 trn in fiscal reserves for housing and education
  • Too little vocational training. Too much emphasis on academic education; too little on vocational training
  • Mundell-Fleming & our Economic Clock®
    • Fiscal expansion – Excess demand for goods
      • under a fixed exchange rate regime, a fiscal expansion[1] itself drives up interest rates, thus  putting upward pressure on the pegged exchange rate.
    • Monetary expansion – excess supply of money
      • So our Monetary Authority will have to “countervene”, i.e. expand monetarily in order to increase the size of the money supply and thereby reduce its price – the interest rate è good news for our stock market in that our Economic Clock’s® Excess Supply of Money is intensified…
    • Stock market magic
      • Even if we are the water skier off the back of the Chinese speed boad: our domestic Economic Time® thus gets characterised by an excess supply of money and an excess demand for goods, boding well for profits and thus for the stock market.


2. CARRIE’S THRUST in her Policy Address[2]

  • It speaks of the determination, boldness in innovation as well as a conscientious effort to address the needs of the people
    • “diversifying our economy is the only solution”
      • boost the development of emerging industries
      • make HK an international information and technology hub
        • Carrie will lead an inter-departmental Steering Committee on Innovation and Technology to examine and steer measures under the eight areas of information and technology development[3] as well as Smart City projects
      • “our aim is to encourage our young people to engage in research and product development.” –  sounds very academic to me
        • The Education Bureau will release $3 bn to provide studentships for local students admitted to University Grants Committee-funded research post-graduate programmes
        • The Innovation and Technology Bureau will launch a $500 mn “Technology Talent Scheme” including the establishment of a “Post-doctoral Hub”. Our aim is to encourage our young people to engage in research and product development.”
      • invest $700 mn to make HK a “Smart City”
  • Humerous tidbits in addressing the “needs of the people”
    • Expanding the HK Convention and Exhibition Centre to include the space of currently three neighbouring gov’t buildings
    • The issuance of green bonds
    • Establish a $1 bn gerontechnology fund for the elderly
    • Review the salary arrangements for kindergarten teachers (e.g. for Donald Trump’s day care centre, to cite Mr. Corker)
    • Provide a recurrent air-conditioning grant for schools


3. HOUSING: chronic housing shortage –  “Starter Homes”

  • “Meeting the public’s housing needs is our top priority.”
  • Carrie’s housing policy consists of these four elements:
    • Housing is not a simple commodity. The gov’t has an indispensable role to play in this area
    • The focus will be on home ownership



  • University funding.  HK$13bn earmarked for university research funding and postgraduate programmes.
  • Pledged 1.5% of GDP on research and development (R&D)
  • $700 mn earmarked to turn HK into a smarter city.
  • No crystallised emphasis on vocational training a la German or Japanese models



  • Lower profits taxes for SMEs.  Lower the profits tax rate from 16.5% to 8.25% for the first HKD 2 mio in profit
  • “To encourage research and R&D investment by enterprises, we propose that the first $2 mio eligible for R&D expenditure will enjoy a 300% tax deduction with the remainder at 200%”
  • “Under my new fiscal philosophy, the Gov’t should make the right investments and in a timely manner so as to reduce the extra expenditure which may have to be incurred if action is delays. Moreover, public resources should be used to address peoples’ most pressing needs….”


[1] Using our fiscal reserves of $1 trn for more housing and education begets an excess demand for goods, thereby improving our profits outlook.

[2] §9, p.3: Gov’t no longer just a service provider and regulator, but also a facilitator: and promoter

[3] These eight areas are:  resources for R&D; ‚ nurturing a talent pool; ƒ venture capital; „scientific research infrastructure; … legislation review; † opening-up data, gov’t procurement;           ‡ popular science education, and ˆ propel information and technology development.

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Dr Enzio von Pfeil

Dr von Pfeil is Director, Group Economist of the Odyssey Capital Group.